Let’s start with this: hoo, boy, my recent articles on Bernie Sanders and Elizabeth Warren have generated a lot of comments — and, to be honest with you, I’m a bit more accustomed to preaching to the choir (“we need to deal with Illinois’ pension debt!” “you bet!”) in the articles I write. But it seems appropriate to address some of the issues you all have raised, yet to do it in this side platform because it really has nothing to do with retirement.
The primary response I’ve gotten goes along these lines, roughly paraphrased: “corporations and the wealthy have been ****ing over middle America for too long. If taking control of corporations (via board seat requirements) and confiscating wealth from the wealthy is what it takes to restore fairness, then we should do this. Heck, we should do this, just because the wealthy don’t deserve their money, regardless.”
And there are a lot of really complex issues here about which I do not claim a heck of a lot of expertise. I can think about them. So can you. I can dig up data and play around with it, and probably have a better shot of interpreting other folks’ data analysis than the average reader, simply from more experience with data and a certain amount of background knowledge on social insurance programs and history. But I am also well aware that the human desire to prove what you want to prove makes it tempting to discard as outliers data that counters your point and welcome into the fold shaky data that proves what you want to say.
But look, we’ve got a couple distinct questions:
Just how bad is income inequality and has it worsened over time? If that’s the case, is it because the poor have gotten poorer or merely that the poor have not experienced the same level of income growth as the rich?
How does it compare to Europe? – Or, more specifically, how do the lives of poor Americans and the lives of poor Europeans differ? (Noting that poor Europeans in 2019 are often hidden from view, as immigrants.)
What are the causes? And — most importantly — what solutions are available that won’t do more harm than good and that don’t perpetrate their own sort of injustice?
So, having said that, let’s start with the data. This all comes from the BLS.gov site, and the Labor Force Statistics from the Current Populatioon Survey, where you can choose ready-made tables or drill down to specific tables. Most of these are in current dollars, not inflation adjusted, so they require a further step of using the CPI to adjust for inflation (the CPI-U is the standard database used), and all of this can be downloaded into excel. (Are there experts who have put this data together already? I’m sure there are, but sometimes there’s something to be said for doing it yourself.)
Chart 1, Median earnings, adjusted for inflation, since 1979. Yes, that’s as early as this table goes.
What do you notice?
Me, I notice that men’s earnings dropped considerably from 1979 to the early 80s (or, since these were high-inflation years, failed to keep up with inflation), dropped even more in the early 90s, then recovered somewhat and stagnated until the last half-decade. Again, these are median inflation-adjusted earnings, specifically Constant (1982-1984) dollar adjusted to CPI-U, for median usual weekly earnings of workers employed full-time, ages 16 years and over. For women, wages rose consistently except for late-80s/early-90s and again from the mid-00s to the mid-10s.
But what about different economic classes? Here the data only exists since 2000, but still tells a useful story.
Chart 2, 1st decile earnings, full-time workers, 2000 – 2019, adjusted for inflation. (The 1st decile means the earnings of the individual who earns more than exactly 10% of all full-time workers. When split out by sex, this is the male worker earning more than 10% of all full-time male workers, and the female worker likewise.)
Again, this is only from 2000, so we can’t see the nefarious actions of corporations during the Clinton era. (Yes, that’s snark.) Women’s earnings bounced around, men’s more clearly dropped, then both recovered, with a dramatic rise for men, beginning in 2012 and 2014 respectively. And, yes, there is still a pronounced gender gap, and I would have liked to have drilled down to a split among different ages at the decile level. But that level of gradation doesn’t exist.
In any event, let’s move on.
Chart 3, 1st quartile earnings, full-time workers, 2000 – 2019, adjusted for inflation.
Here, women’s wage growth, however modest, is clearly more consistent, while the same decline-and-recovery is apparent for men.
Chart 4, 3rd quartile earnings, full-time workers, 2000 – 2019, adjusted for inflation. Yes, this means the workers who earn more than 75% of everyone else.
And Chart 5, 9th decile, that is, those who earn more than 90% of everyone else.
But of course, it’s hard to make too much out from these individual charts. Let’s put it all together:
Chart 6, Change in earnings since 2000, for 5 earnings levels.
This is our bottom-line graph, isn’t it? Yes, 2000 is an artificial starting point, just because that’s the first year of data and that was before the dot-com bubble burst, and it would interesting to see this for a longer period, but, let’s face it, the consistent claim is that the injustice perpetrated on Middle America is reasonably new. And we do see that the very lowest income category had a drop in income before finally recovering, and the very top category has done pretty well. But what do we do with this information?
(And, no, I’m not going to have much patience for “this data is misleading because, even if wages kept pace with inflation, they still wouldn’t be keeping up with the cost of tuition and childcare” because the CPI includes all of this.)
And now I’ll indulge in some idle speculation.
What is it that makes the United States different than Europe?
Yes, of course, the simplistic answer is “they have a generous social insurance system and we don’t.”
But let’s go back a bit further:
until, let’s face it, relatively recently in the grand scheme of things, the way they dealt with their poor people was by exporting them, no differently than is the case in Central America right now. And the US (along with a few other countries, such as Argentina) were the recipients of the poor, who came in waves, and, to be sure, not from every such European country. (French emigrants went to French Canada; the Netherlands, with its history of having been middle-class ever since its early urbanization around the textile industry in the Middle Ages, never really seemed to need to send immigrants anywhere.)
Somewhere along the way there was even a study that hypothesized that it was the more individualistic members of a society who immigrated, based on an analysis of names of Swedish leavers and stayers’ children, during their late 19th/early 20th century period of mass emigration; those who emigrated were more likely to have or have named their children, oddball names, which (unlike some communities in the US where everyone wants distinctive names) was at the time, a sign of individualism.
Which means that the emigration process strengthened social cohesion, and in the end a socially cohesive nation is one that’s more willing to collectively tax themselves more for social insurance/social assistance benefits.
And I should think it goes without saying that social cohesion in the United States is frayed. I discussed social cohesion in a Forbes article back in March about public pensions, and the fact that the lack of trust in politicians complicates efforts to reform pensions, but it, of course, complicates a great many things. And we won’t get the level of social cohesion we need for a more generous social welfare system to function as it should, merely by attempting to direct the collective anger of Americans of all ethnicities, religions, and social classes at the wealthy.
globalization is a big deal. It does mean that the poorest segment of our population (which incidentally is not a fixed group of people but also changing as people claw their way out and more people immigrate in) has been adversely affected by the movement of manufacturing overseas. (And, yes, also by stiffer competition for low-skilled jobs than was the case in the 1950s, before we re-opened the immigration floodgates.) I am not going to dig up the data now but I do believe this has been demonstrated statistically in a reasonably credible way. Globalization also means that, insofar as top earners are not just part of the U.S. elite, but the global elite, their earnings have outpaced the rest of us.
At the same time, globalization has been a force that has brought incredible numbers of people in Third World countries out of deep, deep poverty. Yes, it was likewise hoped that economic prosperity would bring about political freedom in places like China, rather than that country becoming ever more repressive, but — look, I am not old enough to have been around at the time of Mao’s famine, but I am old enough for “think of all the starving children in China” to have been the cliché instruction to children who won’t eat what’s on their plate.
Am I saying: eh, it’s a fair trade-off because for every working-class American made poorer, X number of people elsewhere climbed out of poverty? I guess it comes out that way, but my point is really to put everything in its larger context.
So what’s the answer? That’s where I reach the limits of my own expertise. But I at least wanted to address the issue with readers.